Veren Inc. (VRN) Earnings Call Transcript & Summary

Hello, and welcome to the Annual Meeting of Shareholders of Crescent Point Energy Corporation. Please note that today's meeting is being recorded. [Operator Instructions] It is now my pleasure to turn today's meeting over to Barbara Munroe, Board Chair. The floor is yours.

Thank you. Good morning, ladies and gentlemen. On behalf of the Board of Directors, it is my pleasure to welcome you to the Annual and Special Meeting of Shareholders of Crescent Point Energy Corp. The Board and management thank you for your interest and attendance today. This year, we have made the decision to hold the meeting virtually in light of the COVID-19 health emergency. We do expect that we will be able to hold our 2021 annual meeting in person as usual. My name is Barbara Munroe and as Chair of the Board of Directors of Crescent Point, I will act as Chair of the meeting this morning. Before we proceed, I would be remiss if I did not acknowledge Bob Heinemann, who retired from the Board late last year and has made a significant contribution to the corporation's transition over these last years. On behalf of the Board, I would like to thank Bob for his service. I would now like to introduce the other directors and nominees, in addition to myself and Craig Bryksa, standing for election to the Board and who are attending today's meeting remotely. Laura Cillis, James Craddock, John Dielwart, Ted Goldthorpe, Mike Jackson, Jennifer Koury; and François Langlois. At this time, I would like to thank the Board for their continued support and guidance of the affairs of the company. With respect to the logistics of the meeting, if you wish to vote or participate in the formal part of the meeting, you must be a registered shareholder of record on April 2, 2020, or a duly appointed proxy holder of Crescent Point. If you wish to vote or ask a question, please do so using the instant messaging service of the visual interface. In attendance today are Craig Bryksa and Ken Lamont, who will be available after the formal portion of the meeting is completed, to answer any questions you have already submitted or that you submit during the meeting using the virtual interface. Relevant questions regarding procedural matters or directly related to the motions before the meeting will be addressed during the meeting. All other questions will be addressed during the question period after the formal portion of the meeting. For the purposes of the meeting today, voting on all matters will be conducted by electronic ballot. Registered shareholders and duly appointed proxy holders will be asked to vote on each item of business, and after all items of business have been brought before the meeting, I will report the results of each vote. In order to have the meeting proceed efficiently, we have asked 2 employees who are shareholders or proxy holders of Crescent Point to move and second the motions to be put before the meeting. Note that because of the number of proxies held by management, all resolutions on today's agenda will be approved by the required majorities. If you wish, the scrutineers can provide you with a detailed breakdown after the meeting. As mentioned earlier, if you have any questions about the business of Crescent Point, we will address them after the conclusion of the formal meeting and following Mr. Bryksa's company presentation. I will now call the Crescent Point Annual and Special Meeting to order. Our Senior Vice President, General Counsel and Corporate Secretary, Mark Eade, is in attendance and will act as Secretary of the meeting. Stephen Bandola and Tara Israelson of Computershare Canada, our transfer agent, are in attendance today, and I appoint them to act as Scrutineers for the meeting. I ask Mr. Eade to file a copy of the notice of this meeting which was mailed on April 7, 2020, to shareholders of record on April 2, 2020. A copy of the notice and proofs of service will be filed with the records of this meeting. The Scrutineers have provided me with a preliminary report on attendance and the count indicates that 6 shareholders are present by webcast or by proxy, and 185 proxies were deposited, representing 223,942,826 common shares. Accordingly, 42% of the common shares outstanding are currently represented at this meeting. I, therefore, declare that a quorum is present and that this meeting is properly constituted for the transaction of business. A copy of the scrutineers' report will be filed with the records of the meeting. Copies of the minutes of the last annual meeting of shareholders held on June 14, 2019, has been verified and signed and have been filed in the corporation's minute book. The first item of business is the receipt of the annual consolidated financial statements of the corporation and the auditor's report for the year ended December 31, 2019. The annual consolidated financial statements and auditors report were mailed to shareholders in accordance with securities law requirements, together with the notice of this meeting. I request the secretary to file a copy of the annual financial statements and auditor's report with the minutes of the meeting. John Williamson of PricewaterhouseCoopers LLP, the auditor of the corporation, is in attendance today and available to answer written questions after the termination of the formal business of this meeting. The next item of business is the appointment of auditors. I would request a motion that PricewaterhouseCoopers LLP be appointed auditors of the corporation to hold office until the close of the next annual meeting of shareholders as such remuneration as shall be fixed by the Board of Directors.

My name is David Gowland, and I am a shareholder and proxy holder. I so move.

My name is Peter Allegretto, and I'm a shareholder and proxy holder. I second the motion.

Thank you, David and Peter. We will now open the online poll. Please note that if you have voted your shares by proxy, your vote has already been recorded, and it is not necessary that you vote now unless you wish to change your vote. Voters are asked to use the appropriate voting buttons if voters wish to change their prior vote or vote if you have not submitted a proxy already. [Voting]

I remind you that we will report the voting results on all matters of business at the end of the formal portion of the meeting. Our next item of business is the vote to reduce the stated capital account of the common shares by $5 billion. This item is a matter of special business and will require a majority of 2/3 of the votes cast in order to pass. I would request a motion to reduce the stated capital account of the common shares by $5 billion.

I move that the shareholders vote in favor of a resolution approving the reduction in the stated capital account of the common shares by $5 billion, as set forth on Page 10 of the information circular dated April 2, 2020.

I second the motion.

Thank you, David and Peter. Please note that if you have voted your shares by proxy, your vote has already been recorded, and it is not necessary that you vote now unless you wish to change your vote. Voters are asked to use the appropriate voting buttons. [Voting]

Our next item of business is the vote to increase the common share reserve available under the restricted share bonus plan by 6.9 million and to decrease the number of common shares reserved for issuance under the stock option plan by 3 million. I request a motion on the matter.

I move that the shareholders vote in favor of the resolution approving the increase in the number of common shares reserved for the issuance under the restricted share bonus plan by 6.9 million and the decrease in the number of common shares reserved for issuance under the stock option plan by 3 million.

I second the motion.

Thank you, David and Peter. Again, please note that if you have voted your shares by proxy, your vote has already been recorded, and it is not necessary that you vote now unless you wish to change your vote. Voters are again asked to use the appropriate voting buttons. [Voting]

The election of directors is the next item of business. In connection with the election, it is necessary to first fix the number of directors to be elected. The articles of Crescent Point currently provide that Crescent Point shall have not less than one and not more than 11 directors. It is proposed that 9 directors be elected at this meeting to serve until the next annual meeting or until their successors are duly elected or appointed. We are satisfied that this number of directors is currently appropriate to provide a significant range and depth of expertise and to meet all corporate governance requirements. I would ask for a motion to fix the number of directors to be elected at this meeting at 9.

I move that the number of directors of Crescent Point to be elected at this meeting be fixed at 9.

I second the motion.

Thank you, Peter and David. If you wish to change your prior vote or vote, if you have not submitted a proxy already, please use the appropriate voting buttons to do so. [Voting]

I would now like to open the meeting for nominations of directors to serve for the following year. May I have a nomination for the 9 nominees being Barbara Munroe, Craig Bryksa, Laura Cillis, James Craddock, John Dielwart, Ted Goldthorpe, Mike Jackson, Jennifer Koury and François Langlois.

I nominate Barbara Munroe, Craig Bryksa, Laura Cillis, James Craddock, John Dielwart, Ted Goldthorpe, Mike Jackson, Jennifer Koury and François Langlois to be elected as directors of the corporation to hold office until the next annual meeting of shareholders or until their successors are elected or appointed.

Thank you, David. In 2013, Crescent Point shareholders approved the adoption of an advance notice bylaw. This allows the corporation and its shareholders to evaluate the proposed nominees' qualifications and suitability as directors, helping shareholders cast an informed vote for the election of directors. As no other nominations have been received in accordance with the advance notice bylaw, there can be no further nominations. Accordingly, I declare nominations for the Board closed. The voting for directors of the corporation is pursuant to the policies of Crescent Point by individual director and not by way of slate vote. In addition, the Board has adopted a majority voting policy that meets the requirements of the TSX and requires any director nominee who receives a greater number of votes withheld than votes for his or her election, to submit his or her resignation for consideration promptly after the AGM. However, since the number of nominees does not exceed the number of directors to be elected by the shareholders, and each nominee has already received a majority of the votes represented by proxy at the meeting, each of the nominees will be elected as directors. On this basis, I request a motion that each of the nominees be elected as directors of the corporation to hold office until the next annual meeting of shareholders or until their successors are elected or appointed.

I so move.

I second the motion.

Thank you, Peter and David. Please note that if you have voted your shares by proxy, your vote has already been recorded and it is not necessary that you vote now unless you wish to change your vote. If you wish to change your prior vote or vote if you have not submitted a proxy already, please use the appropriate voting buttons to vote for or withhold from voting for each nominee. [Voting]

Our next item of business is to vote to amend Crescent Point's bylaws to permit meetings by electronic means. Our Board believes that it is essential to have the ability to hold shareholder meetings when an in-person meeting may not be possible or is very difficult, such as during the current COVID-19 public health emergency. I request a motion on the matter.

I move that the shareholders vote in favor of a resolution approving the amendment to the corporation's bylaws as set forth in the Appendix G of the information circular dated April 2, 2020.

I second the motion.

Thank you, David and Peter. If you wish to change your prior vote or vote if you have not submitted a proxy already, please use the appropriate voting buttons. [Voting]

The final item of business is the advisory vote on executive compensation. The Board believes that it is appropriate to hold a nonbinding say-on-pay vote with the intention that this advisory vote will form an integral part of the Board's shareholder engagement process around executive compensation. A detailed discussion of our executive compensation program is provided in the executive compensation section of the circular. I would now ask for a motion that on an advisory basis and not to diminish the role and responsibilities of the Board of Directors, that the shareholders accept the approach to executive compensation disclosed in the information circular made to shareholders in advance of the meeting.

I move that on an advisory basis and not to diminish the role and responsibilities of the Board of Directors that the shareholders accept the approach to executive compensation disclosed in the information circular.

I second the motion.

Thank you, David and Peter. If you wish to change your prior vote or vote if you have not submitted a proxy already, please use the appropriate voting buttons. [Voting]

We are about to close the polls. If you haven't finished indicating your vote on any selections, please do so now. [Voting]

The polls on all items of business brought before the meeting are now closed. I declare that all resolutions put to the meeting have been carried and that Craig Bryksa, Laura Cillis, James Craddock, John Dielwart, Ted Goldthorpe, Mike Jackson, Jennifer Koury, François Langlois, and I have each been elected directors of Crescent Point to hold office until the next annual meeting of shareholders or until successors are elected or appointed. I declare that the advisory vote with respect to say on pay has been carried with approximately 80% voting in favor of the resolution. The scrutineers' report will be filed with the records of this meeting. As all business properly brought before the meeting has been dealt with, this concludes the business of the meeting, and I declare the meeting is now closed. Mr. Bryksa will now give a presentation on the company. Following Mr. Bryksa's presentation, we will respond to questions submitted by registered shareholders or valid proxy holders to management before or during the meeting.

Good morning, everyone. I'll just remind you, if you can't see the presentation, please click on the broadcast tab on the bottom left-hand side of your screen. And then when you get there, please advance to Slide 3, and I'll start my presentation there. With that in mind, I'll give you a minute or so to get to that. As you can see, we've made some adjustments to host our AGM virtually this year. These are truly unprecedented times, and we want to ensure everyone stays safe during this pandemic. The amount of change we've seen in recent months, both in terms of price volatility and how we operate our business has been staggering. It can't be overstated that this is a once-in-a-lifetime situation where we had a global pandemic paired with an oil price war that has led to oil demand destruction of unprecedented levels. We reacted very decisively to these challenges. And perhaps what has struck me most is how resilient and adaptive our company has been in responding to these extraordinary times. Over the past 2 years, we've demonstrated our focus and discipline in transforming this company to establish a position of financial strength, operational excellence and long-term sustainability. The bold steps we took in 2019 have enabled us to withstand the current commodity price environment and emerge from this period of uncertainty poised for success. Let's move to Slide 4. I'll start this presentation today by reviewing our 2019 achievements; next, how we are managing our business in the current environment; and finally, I'll share our perspective on 2020 and beyond. Before we begin though, I'd like to thank all our shareholders for their continued support. We appreciate your confidence as we work together to build a stronger Crescent Point that will deliver long-term sustainable shareholder value regardless of the external macro environment. Let's move on to Slide 5. In September 2018, we set out an ambitious strategy to transform Crescent Point. The strategy revolves around 2 things: enhance our long-term sustainability and build and maintain balance sheet strength. There are a number of underlying components that go into each of these, but what they ultimately lead to is Crescent Point delivering improved shareholder returns. Throughout 2019, we worked diligently to execute on this strategy and deliver results in what was a very challenging market for the North American energy sector. Our success and execution in 2019 has put Crescent Point in a strong financial position to succeed as we weather one of the most challenging environments the global economy has ever seen. Let's talk about our deliverables and actions on Slide 6. We identified 3 key value drivers to focus on in 2019: Focusing on our asset base, strengthening our balance sheet and improving our returns. On the right-hand side, you can see the specific actions we took to deliver on these areas. As we move to Slide 7, I'll speak to 2 of these in detail: our net debt reduction and our relentless focus on our cost structure. We reduced our net debt from $4 billion at the end of 2018 to $2.3 billion by the end of Q1 2020. That's a $1.7 billion debt reduction in what was a very challenging market. We accomplished this through a successful asset disposition process, a relentless focus on our cost structure, remaining disciplined with our capital allocation and free cash flow generation from our high-netback asset base. Our focus on our cost structure resulted in $170 million of cost reductions through 2019. If you include 2020, we have cut over $260 million to date. That's combined OpEx, CapEx and G&A. Our early adoption of digital technologies resulted in $70 million of permanent organic operating cost savings in 2019. We've continued to advance this across our fields, and I'm happy to report we have cut a further $50 million out of our operating costs in 2020. That's $120 million of sustainable operating cost savings in the last 18 months. These material debt and cost reduction initiatives have strengthened our balance sheet, enhanced our long-term sustainability and combined with our ample liquidity of $2.5 billion, Crescent Point is in a position of strength as we enter a very volatile period for the energy sector. Let's move on to Slide 8. Speaking of challenging environment, I'd like to address how we'll work through this. As we move to Slide 9, let's talk about our proactive response to the pandemic. The first priority for Crescent Point has always been the health and safety of all our stakeholders and communities in which we operate. Early on, we took a proactive approach, initiated our business continuity plan to ensure we were well positioned should we have to alter our working environments. This put us in a great position as provincial, state and federal governments took the necessary actions to protect the health and well-being of their communities. We quickly were able to implement our work-from-home policy and physical distancing protocol to ensure safe working environments for both our office and field staff. Our early investments in digital technologies, both at a field and office level, provided infrastructure that enabled us to continually operate seamlessly and demonstrate our corporate resilience. Our teams have not only managed our operations successfully during this time, they have also thrived in an adaptive working environment. In fact, we believe some of these changes we've made in responding to this pandemic will lead to further sustainable cost savings going forward. Speaking of moving forward, let's talk about our global supply and demand balance in our industry on Slide 10. The scale of oil demand destruction that we're seeing is unprecedented. Forecasters have estimated global oil demand will be down as much as 15 million to 20 million barrels per day in the second quarter. The net result has been unimaginable price volatility so far in 2020, and that continues to be a challenge today. However, the world will continue to need oil. Those same forecasts show demand returning in Q4 this year with demand outpacing supply in 2021. We have taken proactive measures to ensure that we will come out of this turbulent time in a position of strength. As we move to Slide 11, let's talk about some of these decisive actions we have taken to enhance our sustainability. In response to the dramatic drop in demand, we took quick and decisive action to protect our balance sheet and sustainability. We cut our capital by 40% or $475 million and have the flexibility to cut further as we aim to balance our cash inflows with our cash outflows. We reduced our operating expense budget by $140 million, $50 million of which is permanent sustainable savings. We proactively shut in 25,000 BOE per day of our lower netback production in order to maximize cash flow. We reduced our executive and Board compensation. And we made the decision to cut our dividend and suspend our share repurchase program through our NCIB. And through all of this, our staff continue to demonstrate our operational excellence. Let's talk about how we plan to manage the current environment on Slide 12. While the external environment remains uncertain, we are effectively controlling all elements within our control. Our current priorities are focused on maintaining our ability to adapt our business, manage risk effectively and continue to remain disciplined but flexible should unforeseen events arise. These are cornerstones of our business that we are proud were in place prior to the current situation. Going forward, we'll continue our commitment to enhancing our financial position and our overall sustainability. Let's move on to Slide 13. As we move to Slide 14, I'll speak to you both 2020 and beyond. Our focused high netback asset base provides us with a competitive advantage. These are mainly light oil, large oil-in-place reservoirs that provide competitive returns, are scalable from our production reserves and cash flow standpoint. In a normal pricing environment, these areas generate free cash flow or have the ability to generate free cash flow. And geographically, they are situated in an advantageous position as far as market access is concerned. This is a netback advantage in times of limited pipe capacity. As we move to Slide 15, I'll highlight our strong commitment to ESG. We've ingrained strong environmental, social and governance objectives into all aspects of our business, and we're excited to be releasing our second sustainability report this coming June. We believe wholeheartedly that strong ESG performance is intrinsically linked to strong financial performance. But not only that, it's linked to a more engaged staff, more positive relationships with our stakeholders and a lighter impact on the environment. It's part of managing our business the right way. Our strong corporate culture is what ultimately drives our success, and I'll speak to that on Slide 16. Most people assume it's a company's asset base that sets them apart. I'm here to tell you that's not the case. It's the people in the company that do that. Our employees truly are the heart at Crescent Point. They enabled us to execute like we did in 2019, and they continue to strive for operational excellence in all that we do. To our great employees, thank you. Our focus on employee engagement is driven through our cultural attributes of collaboration, agility, results and ethics. The strong corporate culture gives us a competitive advantage and has resulted in higher employee engagement, safer operations, lasting relationships with our stakeholders. Let's move on to Slide 17. Bringing energy to the world -- to our world the right way speaks to how we want to operate our business and how I aspire to run the company. It speaks to our commitment to our long-term sustainability, our commitment to our stakeholders and our commitment to you, our shareholders. I'd like to thank you for your continued support, and I would now like to open the line for any questions. As we move to Slide 18, I'll open up lines for questions.

Okay. I've got a question here. I'll just read it loud and then give you my answer. What have you learned from the COVID-19 pandemic? And will this experience fundamentally change how you manage the business going forward? With that, I would say there's fundamentally a few things that we've learnt, and there's a few things that we're going to change as we drive the business forward. I think the biggest changes and the learnings for us have been really what digital and information technology can do and how much more efficient they can make you. I think over the last 18 months, you've seen this company really advance this platform in our fields. And we proactively had this approach in our both Denver and Calgary offices as well. So one of the things that I think we'll take away from this is just how much more efficient we can become out of this on our corporate structure. I would say, the digital information technologies as well and how we really advance this and continue to advance this across our fields and operating areas and continue to look for more cost savings through that. And then the other thing I would say is there's going to be some opportunities through this and ahead of us to make the company better. So we'll just continue to have an eye on that. We've got another one here. Is there room for any additional costs or capital reductions versus what you've announced so far? So we put our budget out in mid-March or our revised guidance in mid-March and part of that -- and really part of the beauty of how we set it up was it gave us flexibility to further cut our capital program later in the year. So our new corporate guidance or our new capital guidance is $650 million to $700 million. Roughly half of that has been spent so far in the first quarter. So roughly half of that remaining here for the second part of the year. Of that, a big component of that is set up for a Q4 capital spend. That being said, as we look to balance our capital -- our cash inflows and outflows, look for us to be disciplined with this. If commodity prices are what they are today, look for us to further reduce the capital program and then continue to focus on balancing those inflows and outflows. So certainly have the ability to cut capital more, and we'll keep an eye on that as we move towards the future. And I've got one here, another one here on, can you explain why you're reducing your stated capital account for the second consecutive year? That's a question that we had last year as well. But basically, every year, you need to do one of the things you need to do if you choose to pay a dividend or a share repurchase program through your NCIB. You need to do what's called the dividend solvency test. And part of that test, your net realized value of your assets less your liabilities needs to be in excess of your stated capital. With the challenging environment we're going through right now and with the commodity prices the way they are, that's actually had a -- you could see how the value of the company would be under that stated capital. So we've made the choice to pull that back this year. And what I would say to that is there's no impact to shareholders, and there's no impact on any tax implications as well. With no more questions, I'd like to thank everybody for their time today. And we certainly appreciate it. And with that, I'll conclude the meeting. Thank you.

This concludes the meeting. You may now disconnect.